Day trading is buying and selling security in a day. This is not for the common trader but for the trader with enough funds and information in trading.
Day trading is defined as the buying and selling of a security within a single trading day. This can occur in any marketplace, but is most common in the foreign-exchange (forex) market and stock market. Typically, day traders are well educated and well-funded. They utilize high amounts of leverage and short-term trading strategies to capitalize on small price movements in highly liquid stocks or currencies. Day traders serve two critical functions in the marketplace: they keep the markets running efficiently via arbitrage and they provide much of the markets’ liquidity (especially in the stock market). This article will take an objective look at day trading, which does it and how it is done.
Day trading would not be successful if it weren’t for the tools used by the traders. These traders have more than five hundred software tools, analysis and chart platforms at their disposal. The list below concentrates on the top four tools.
List of Best Trading Software Tools
- Stock Screeners
- Streaming Quotes
- Watch Lists
- Trading Strategy Builders
A stock screener allows you to focus on a specific subset of stock symbols from amongst a vast universe of stocks. You choose any number of stocks and vet them against a select list of criteria.
In order to quickly jump in and out of stocks, take profits, or quickly place an order, you have to constantly evaluate trading prices and volume.
Using trading tools such as real-time quote data and other valuable streaming data points, you can customize your trades on the fly, enabling you to instantly react to changing market conditions.
There is a reason day trading is not every traders cup of tea. Financial experts liken it to gambling. How else can they explain the fact that true traders have been holding on to a stock and a day trader just keeps it for minutes. The ending of such traders is not so bright but there are those are confident that they can defy the odds.
Successful long-term investors study businesses, carefully select stocks and aim to hold on for years. They consider themselves, rightly, as part-owners of real businesses. Day traders, meanwhile, tend to spend hours glued to monitors, watching stock-price graphs and placing orders. They’ll typically place scores of orders each day and hold each stock for a few minutes or hours. Many ignore company fundamentals and may not even know what various companies do.
While investors pay long-term capital gains rates on stocks held for more than a year, day traders are stuck paying generally higher short-term rates.
According to managers of day-trading firms cited in a Washington Post Magazine article, about 90 percent of day traders “are washed up within three months.” A principal of a day trading firm even admitted, “95 percent will fail in the first two years.”